Five stocks to watch in September


In full-year results to 30 April 2015, Cohort reported revenue 40% higher than the previous year and adjusted profit 23% higher. Stripped of acquisitions, the company says it achieved organic revenue of 23% and adjusted operating profit of 17%.

Despite paying for the acquisitions in cash, it still increased its cash balance 7% to over £10 million. It has negligible debt.

It was a year when everything went right, which is doubly impressive considering Cohort supplies a defence industry still constrained by reduced government spending.

Cohort listed in 2006 to acquire small defence companies. Its businesses offer research, advisory and training services as well as products and technology.

Cohort's selling point has always been that it is more agile than its larger competitors because its businesses are small and not encumbered by bureaucratic management. Customers prefer their operational autonomy, which keeps costs down and increases the speed of decision-making.

Autonomy may also encourage managers to stay on after Cohort has acquired their businesses, retaining their expertise and connections with the defence industry. For example, Darren Allery, founder of MCL which is now a division of Cohort, is still running the company.

A share price of just over 330p values the enterprise at nearly £134 million, or 15 times adjusted 2015 profit. The earnings yield is 7%. But 2014-15 was a very good year. If Cohort had earned its aver- age return on capital over the last six years in 2015, profit would have been lower and so would the earnings yield at 4%.


In the year to 31 March 2015, Dart increased revenue by 12% and adjusted operating profit by 21% over the previous financial year, but there was a sting in the tail.

Grow Money submitted by passengers who were delayed In 2014, Dart's airline Jet2 was ordered by the Supreme Court to pay compensation claims due to technical faults. Jet2 had deemed these claims ‘extraordinary' under European regulations, and not subject to compensation.

Now Jet2 has made a provision of £17 million for hitherto unpaid claims, so statutory operating profit fell 32%. The provision is treated as an exceptional item and ignored in the headline figures to give a better indication of underlying profitability.

Fast-growing Jet2 and its companion Jet2holidays, a package holiday business, are now by far the most significant part of the group (accounting for around 90% of revenue and profit). Jet2 flies to European holiday destinations from smaller airports, mostly in northern England.

The integration of the airline and package tour company enabled Jet2 to fill more seats in 2015, and the increasing number of people choosing four- or five-star accommodation lifted profitability. Jet2 also sold more stuff, from seat allocations to insurance.

Dart reported strong demand for holidays in the first months of the new financial year and predicts a positive outcome for 2016.

A share price of 446p values the enterprise at £925 million or about 15 times earnings. The earnings yield is 7%. However, this figure needs to be treated with caution as, in common with most airlines, Dart's prospects rest on uncertainties such as the price of jet fuel, political instability and the health of the economy.


James Latham grew revenue and adjusted profit by 7% and lifted return on capital marginally to 11% in full-year results to 31 March 2015. The company has negligible borrowings.

At last year's AGM, Lathams had said its prospects were more positive than for some time, and the wood importer and distributor duly shifted plenty of door blanks and melamine panels in 2015.

Lathams imports and distributes panel products (for example plywood and medium density fibreboard), engineered wood and timber. These commodities can build up in warehouses when building activity is subdued.

At such times Lathams and other distributors cut prices and profitability suffers, so it is important not to judge Lathams on one year alone.

That said, the company remained profitable through the 2008-09 financial crisis and average profitability is respectable.

The company has a conservative culture due to the continuing control of the Latham Solid State family. Chairman Peter Latham has worked for Lathams for 42 years, and the company traces its history to 1757, when James Latham traded timber in Liverpool.

Today, Lathams buys timber from Africa, Europe and North America and it probably has deep ties with its suppliers. It is focusing on high value, decorative products, and cautiously expanding in Ireland and abroad.

A share price of 738p values the enterprise at £153 million, or about 17 times adjusted profit in 2015. The earnings yield is 6%.

Lathams is respectable in every way but the share price, which may be a little racy.


In full-year results for the year to 27 March 2015, digital radio terminal designer Sepura increased revenue 12% and adjusted profit 24%. The company is profiting as customers switch from obsolete analogue networks.

Digital radio terminals are professional walkie talkies. Sepura's historical speciality is the TETRA standard required by armed forces and emergency services, but it's also investing in the lesser DMR standard used by smaller commercial customers.

After the year-end, Sepura bought Spain's Teltronic, which supplies digital radio infrastructure: base stations and network software.

The company says the combination of Teltronic, North America's leading TETRA infrastructure supplier, with Septura will give it a leg-up in the biggest geographical market for private radio, and save costs.

Although it faces competition from leviathans such as Motorola, Sepura reports sustained demand and a record order book. The bulk of revenue comes from abroad.

But Septura's expansion into commercial mobile communications, which currently earns it only 25% of revenue, is partly defensive as government agencies consider alternatives to TETRA. In the UK the TETRA system may be retired in the next few years. The Home Office is considering commercial 4G LTE mobile telephone networks, which may be cheaper, and unlike TETRA allow broadband services.

Sepura is a company in flux and the price is not cheap. A share price of 155p values the enterprise at £295 million, or about 26 times adjusted 2015 profit. The earnings yield is 4%.

The results in 2016 will be for a much bigger, and probably more indebted, business. If every- thing goes to plan, strong growth will follow. It needs to, if it is to justify the share price.


Solid State lifted revenue 14% and adjusted profit 39% in the year to 31 May. In 1996, when it joined Aim, Solid State was a small and some- times struggling distributor of electronic components. That business lives on as Solid State Supplies, but in 2002 it diversified into manufacturing when it acquired Steatite, which has become an engine for growth.

Steatite manufactures lithium battery packs, rugged computers, secure communications systems, industrial computer hardware and microwave antennas. But investors are probably more excited by a massive (by Solid State’s standards) contract to supply and maintain hardware for tagging criminals. The contract with the Ministry of Justice is initially worth £34 million over three years, which is about as much revenue as Solid State earned in 2015.

Solid State has found profitable niches customising equipment, often for customers requiring specifications that can withstand harsh conditions. As the company has grown it has acquired other small companies, increasing the range of products it sells and spreading the distribution cost.

Immediate prospects are very good. Its order backlog at the year-end was 22% higher than at the end of the previous year and Solid State is only just getting started with the Ministry of Justice contract. If, as would be expected, the contract is profitable, the company’s current market valuation is redundant. Profit in 2016 and beyond is likely to be much higher than it was in 2015. But it does give us an idea of what Solid State might have to achieve from its growing businesses.

A share price of 880p values the enterprise at £80 million, about 30 times adjusted profit in 2015. The earnings yield is 3%.